Calls for Labour to use a wealth tax to patch the £22bn hole the Tories dug in the public finances have been growing louder. Among those wondering if asking the richest to loosen their purse strings might be a better way forward than telling the poorest to tighten their belts are the Green Party, Tax Justice UK and the Unite Union.
A wealth tax is incredibly popular, not least among pensioners who may have thought the most they had to fear from the incoming government was having their benefits rather than their loved ones frozen.
However, ever since the Labour party discovered that the financial reserves were lower than reasonably expected, pre-emptive strikes have rained down on the suggestion that the rich might be the target of a little fund-raising. Editors at the Telegraph and the Daily Mail have lined up with such giants of fiscal responsibility as Kwasi Kwarteng and Boris Johnson to bemoan the idea.
This rush to defend the bank balances of our richest citizens, balances that have grown exponentially, is based on some distinctly dodgy economics and even dodgier ideas about human behaviour.
We are told that a wealth tax would be too complicated to administer, would disincentivise the folks with all the money and risk sending them abroad, leaving the country to struggle by without their largesse.
Means testing the rich
It seems that means testing only works if the means you are testing don’t amount to much.
The argument that a wealth tax would be prohibitively complex relies on the theory that it’s just too damn difficult to discover what rich people own. When it comes to the rest of us however, it’s easy (there’s less to count!) and the Department of Work and Pensions somehow manages to keep on top of all 11 means-tested benefits. Apparently, auditing 12 million pensioners for the Winter Fuel Allowance or 6.7 million folk receiving universal credit is doable, but counting the second and third homes of the super-rich would be an insurmountable task.
However, when publications like the Times produce actual lists of our richest citizens, surely a system that counts how many kids a nurse has and penalises them for having too many can do the same thing with a millionaire and their yachts.
An exodus of millionaires?
According to the Telegraph (them again!) Johnson and others, millionaires, faced with the spectre of a socialist tax grab, are loading up the Range Rover, firing the au-pair and heading for sunnier climes.
Quoting some vague figures about “increased enquiries” to relocation specialists while using Charlie Mullins as the (rather unfortunate) face of the exodus, we are told that the country has already “suffered” the loss of several millionaires and, if we’re not careful, could lose up to 9500 more.
As that’s less than 0.5% of the UK’s millionaires there isn’t going to be a shortage any time soon and, isn’t it strange that being an economic migrant is applauded as pragmatic by the right-wing press as long as that migrant is from Kensington rather than Albania?
The thrust of these articles is that losing these people would leave us all worse off. But even ignoring the natural desire to wave such selfish types goodbye with a single, rigid finger, the facts don’t back that up.
For a start, experts in taxation such as Richard Murphy of Funding The Future are clear that your average millionaire isn’t that keen to dismantle the comfortable lives they’ve built in the UK. Afterall, their kids are at school, they have very well-paid jobs and they’ve just found a good nanny.
Then there’s the fact that the rich don’t have to move to move their assets. Convenient if questionable strategies such as non-dom status and offshore tax havens already allow those who can access them to pretend their money lives abroad even if they don’t.
In fact, a record number of millionaires have already left good old Blighty scared off, not by the prospect of higher taxes but by the reality of Boris’ old friend Brexit messing up their international business plans. And quietly another tranche of the super-rich have gone super missing. Afterall, if you made your roubles in Vladivostok, you may find London’s estate agents less eager to hide them in Belgravia’s bricks and mortar since your boss started bombing his neighbours.
The rich won’t need a food bank
We are told that a wealth tax would be bad for all of us. So miffed about having to chip in, those affected will simply down tools and watch the economy collapse around them.
This idea is predicated on the myth that the rich got that way through hard work. However, the truth is many of those with money landed it the moment the midwife said, “Congratulations Sir Cuthbert, it’s an heir.” Today, every billionaire under thirty in the world inherited their cash.
Despite miserly outliers like Branson, Green and Ratcliffe who would rather live in tax exile than pay their fair share, taxes don’t stop the rich wanting to be rich. In fact, a surprising number of the super-wealthy are fine with higher taxes and groups like the Patriotic Millionaires actually campaign for them. They know that a well-funded society is a better place to live and if you can afford to fly first-class to Dubai then handing over a few extra quid isn’t suddenly going to see you reduced to speedy boarding on EasyJet.
Anyway, the wealth taxes currently being proposed would barely shave the top off any millionaire’s pile. Take Unite’s idea, they reckon a tax of just 1% on assets over £4mn could raise £25bn a year. So, anyone with £10mn would be left with £9,940,000 to scrape by on. Sitting on £5mn? Over the £4mn threshold, the treasury would take just 10 grand. Even if you stick only half of what you’re left with in an easy access account you’ll have made back what you lost in just one month. Yes, that’s how rich the rich are!
Rebate schemes for the rich
Some experts are less keen on a wealth tax than on reforming taxes for the wealthy.
You see there’s income tax and then there’s tax on income. How you make your money changes how much tax you pay and the inland revenue offers a huge rebate scheme for the rich.
Earned income is taxed at 20% if you work at Tesco, 40% if you’re the regional manager and 45% if you own the supermarket.
But the lower rate for capital gains and dividends means that if you’re rich enough to be paid in shares or to buy investments like property, you can slash your tax bill. Then there’s pension tax relief through which the highest earners are literally handed billions of pounds. Under this ridiculous scheme if a basic rate taxpayer contributes £80 to a pension the government tops it up to £100, but anyone earning over a hundred grand only has to cough up £55 to have their pension boosted to the same level.
Then there’s other little tricks like borrowing against assets and taking your income, tax free, as a loan; a ruse Jacob Rees-Mogg knows a bit about and which is known in America as “Buy, Borrow, Die.”
Such dodges go some way to explain why 1 in 10 people with an income over £1mn pay just 11% in tax. The real scandal is that these tactics are all perfectly legitimate, no dodgy tax evasion here, just discounts offered to the rich which are costing the rest of us a fortune.
So, as Rachel Reeves decides which benefits need squeezing to pay for her next tough choices, she should remember that some of the biggest claimants have the broadest shoulders.
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